March 29, 2014

According to Reuters, FinCEN is amending anti-money laundering (AML) policies to require that casinos ascertain source of funds for large cash or wire deposits, or large bets in the United States. Before such a move takes place, FinCEN would submit the proposed rule for comment by the industry.

Any commentary that opposed the change, however, is unlikely to be considered seriously because source of funds vertification already exists for politically exposed persons in AML law in most countries, including in the US. It is also routinely done for immigration purposes in many countries with investor immigration programs that encourage immigration from Asia. Such a rule would not be any more burdensome or expensive in terms of compliance for casinos, than it is for other sectors that report to FinCEN.

When such a rule is implemented, however,it will negativey impact the appeal of gambling in the US by Asian tourists who, as a matter of culture, will be reluctant to disclose personal information to any casino operator, particularly financial information and particularly in the gaming environment when such information will be provided to gambling regulators and FinCEN.

Several weeks after reporting that its websites were attacked by political hackers, the Las Vegas Sands Corp. reported that the personal information of some gamblers and hotel guests (and possibly some employees) was stolen in the attack. The cyber-attack was allegedly motivated by comments CEO Sheldon Adelson made about Iran. The cyber-attack affected Las Vegas Sands Corp. corporate website and several of its casinos. The most high profile (and material breaches if any) appear to those from the casinos in Macau, Singapore and Las Vegas. It is unknown whether the personal information of high rollers and prominent persons who frequent high-end casinos, their nightclubs and casino hotels was taken.

It is public knowledge that casinos have significantly more personal information collected, retained and stored on gamblers, night club and hotel guests than most businesses because of the nature of the services and the heightened financial crime risks in which casinos operate, including client ID and financial transaction records, credit reports, bank records, Bank Secrecy Act reports, problem gambling reports and video surveillance records associated with gamblers. Some casino data is extremely sensitive. It is the probably the one sector, more than any other, where customer, operational and financial privacy is vitally important and maintaining its secrecy is essential to the integrity of gaming.

On its website, the Las Vegas Sands Corp. seems to confirm that credit and financial information provided by patrons was taken by the hackers. There is even a YouTube page that shows the hacking results and it contains the Social Security Numbers, emails and names of hundreds of people purportedly from several casino locations.

The FBI, US Secret Service and gambling regulators in several jurisdictions are no doubt involved in the investigation into the cyber-attack. Casino operators can expect this incident to result in significant changes to cyber-security protection in the gaming sector.

The reason the nature of the personal information and the extent of video surveillance collected and retained on casino patrons (including those that visit casino hotels, lobbies and night clubs) is public knowledge is, in part, from several decisions in Canada and elsewhere before, among others, privacy tribunals which disclosed casino operational information.

February 27, 2014

Recent headlines on the digital currency phenomenon, bitcoin, haven’t been entirely positive, with news of regulatory clampdowns, the hacking of exchanges and the arrest of key market players over alleged money laundering.

Despite recent negative publicity, bitcoin is being accepted by an increasing number of merchants around the world. That includes two Las Vegas casinos – D Las Vegas Casino Hotel and the Golden Gate Hotel & Casino – that recently said their hotel and gift shops would accept the currency, although not for gambling. The online gambling, or iGaming industry, is no different. More and more online gambling websites are investing in technological changes to accept bitcoin bets. And it’s easy to see why.

According to the American Gaming Association, the iGaming industry worldwide is worth $30 billion annually. Bitcoin offers business advantages to gaming entrepreneurs that they can’t get with any other payment method. Those include payment finality (inability of players to demand chargebacks, whether from fraud, dissatisfaction or error), low to no transactional costs, ease of funds transfers, privacy protection and freedom from prohibitively expensive Know Your Customer rules.

On the other hand, gambling with bitcoin raises unique legal issues – it provides little consumer protection to players and, like cash, is susceptible to risks of money laundering and terrorist financing. It also has no mechanism to prevent underage gambling and deter problem gambling – issues that are paramount to upholding the integrity of gambling.

These issues create a dilemma for gaming regulators in regulated iGaming jurisdictions that want to facilitate innovation and growth in the iGaming industry but are prevented from doing so because the anonymous nature of bitcoin makes it impossible to supervise financial transactions and identify gamblers.

What is bitcoin?

Bitcoin is a digital currency, i.e., one that exists purely online in cyberspace. It was started in 2009 by a person known only by the pseudonym Satoshi Nakamoto. It is unique in many ways. Unlike traditional currencies that are issued and controlled by central banks, bitcoin has no central monetary authority and is not backed by any authority or government.

February 08, 2014

Although casinos in Las Vegas may continue to be struggling, their lounges and night clubs are inadvertently developing a growing business in escort services by third parties.

It's becoming a problem for the casinos and the police, particularly because there is evidence of underage prostitution and human trafficking tied to casino night club escort services.

Casinos are required to protect the integrity of gaming and cannot permit any illegal activities to take place on their premises.

Casino night club prostitution can be a compliance officer's nightmare. A prostitution or escort transaction generates proceeds of crime from the casino patron to the pimp (or directly to the escort) which is typically spent in part at the night club or washed unknowingly by the casino. The casino compliance officer has to file a report for each escort transaction he or she sees (or the surveillance team sees on the PZT in the surveillance room) because it's a criminal offence that occurred on its premises, and if any of the proceeds of crime are then used for a casino transaction, a STR must be filed as well.

The Las Vegas police are clamping down on the problem with the arrest of clients, particularly foreigners visiting Las Vegas who hire escorts in casino clubs, and are working with gaming regulators to obtain evidence and prosecute.

A few years ago, Planet Hollywood Casino was fined $750,000 by the gaming regulator for turning a blind eye to prostitution occurring at a night club on its premises.

High Roller Has Secondary Meaning

In Las Vegas the term "high roller" which is normally used to describe wealthy gamblers now has a secondary meaning - a pimp rolling in cash, e.g., proceeds of crime from prostitution.

These new types of high rollers present another problem for the casinos and compliance officers because they are well-known to them. Casino compliance officers are aware of the business in which pimps are engaged, and its illegality. Every casino transaction a pimp makes involves proceeds of crime and the casino must file a STR even if on the particular day in question, the pimp merely gambled. The same is true for the escorts - each casino transaction requires the filing of a STR because all of their income is proceeds of crime.

This aspect of anti-money laundering compliance is a concern for casinos who risk massive fines in the U.S. for failing to monitor and file requisite reports.

You're on a PTZ Camera

Ironically, "what happens in Vegas stays in Vegas" is inaccurate.

Every inch of every casino (including lounges, night clubs, and bars) in Las Vegas is videotaped from at least three different angles using sophisticated PTZ cameras (the image above is a PTZ view before it's zoomed in) and stored in databases.

A PTZ camera is one that is mounted on a casino ceiling and can be tilted and zoomed "up close and personal" to capture in graphic detail activities of interest.

What happens in Las Vegas does not stay in Vegas - it stays in the video records of every casino, the head office of the casino owner and is available on the computers of every gaming regulator.

The use of PTZ cameras in casinos and their capabilities used to be relatively secret, however, several privacy hearings in Canada disclosed the extent to which such cameras are used in casinos and the type of information that is obtained from them for law enforcement purposes.

Sin City With Limits

There is a common misconception that Las Vegas is a place where anything goes but the opposite is true. The casino industry is highly regulated and Las Vegas is a place where what you see if not what you can get. At casinos, their hotels and night clubs and all along the Strip, there are no strip clubs permitted and escort and prostitution services are prohibited.

October 31, 2013

Ruth Parasol, the founder of PartyGaming Plc (Party Poker), now Bwin, is selling her 7% interest in Bwin to avoid the gaming regualtory vetting process in New Jersy according to the Financial Times.

Bwin hopes to be registered to provide services to Borgata, an Atlantic City casino. In order to be registered, service providers must undergo a suitability review process by New Jersey's gambling regulator to ensure that they, and the persons and entities with whom they are associated do not negatively affect the integrity of gaming. Ms. Parsol is a former lawyer. She is alleged to have operated an online porn site before entering the online gambling field.

In 2010, PartyGaming Plc acquired all of the issued and outstanding shares in Bwin Interactive Entertainment AG pursuant to a reverse take-over. At the time, the merger was touted as a desirable one to position the merged entity to re-enter the U.S. market when and if online gambling was legalized.

However, now that several states are permitting online gambling, there are legacy issues that may be difficult for PartyGaming to overcome because the FBI Financial Crimes Report for Fiscal Year 2008 reported that Party Gaming Inc. "provided money laundering services to members of Italian organized crime."

From a regulatory perspective during the investigation for licensing, numerous issues may arise in connection with the FBI report such as: historically, determining who the Italian organized crime members were; and whether any of them were Specially Designated Nationals on OFAC's sanctions list, and currently, whether Bwin's financial crime compliance regime is adequate; whether funds are received from or sent to OFAC sanctioned listed entities and persons; whether funds are received from or sent to persons and entities listed on terrorists lists; and whether it operates in compliance with the laws of each country in which it accepts bets. Some of these queries are not unique to Bwin's application.

PartyGaming was indirectly mentioned in the suitability review of Caesars Entertainment Corporation by the Massachusetts Gaming Commission. In its investigative report, the MGC noted that, pursuant to PartyGaming's 2009 Non-Prosecution Agreement with the U.S. government, it offered online gambling to players in the U.S and undertook U.S. payment processing arrangements that seem to have been designed to hide the nature of the transactions as gambling transactions at a time when its disclosure documents commented on the fact that U.S. regulatory authorities viewed its provision of gambling services to U.S. persons as illegal.

Insiders say that if Bwin is found suitable and licenced, it will have to immediately cease operations in Canada. No doubt the registration application of Bwin will be closely watched.

March 01, 2013

A mud chip is an integral part of the VIP Rooms, or high-roller gambling system in Macau. It is known by various other names including a dead chip, rolling chips or non-negotiable chips. They are used in Macau predominently and are an integral way in which gambling with VIPs is done.

Pursuant to the mud chip system, casino operators sell (or advance) to junket operators, also known as VIP Room operators, certain volumes of non-negotiable casino chips at a deep discount. The junket operators sell mud chips to gamblers in the VIP Rooms for their actual face value. For example, a $10,000 chip is sold by the casino operator for $6,000 to the junket operator who then sell it for $10,000 to the gambler, making an instant $4,000 return. The return is theoretical because VIP Room junket operators often advance credit to gamblers from Mainland China and gambling debts incurred from the sale of mud chips must then be collected in China or Hong Kong after the gambling takes place.

There are often sub-contractors or sub-junkets in the process. Junket operators normally gurantee certain levels of purchases on a monthly basis to maintain their VIP Room agreements.

March 09, 2012

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According to a report in the Las Vegas Review-Journal, Nevada gaming regulators are increasing their scrutiny over the operation of junkets at Macau casinos that are owned or controlled by U.S. gambling companies amid allegations raised by U.S. gaming union officials that junkets affect the integrity of U.S. gaming operations.

There are approximately 200 junkets operating in Macau. They typically bring wealthy gamblers from areas such as China, and rent VIP Rooms in Macau casinos for their clients to gamble. Junkets operators issue credit to their high-roller clients, and earn commissions from the funds gambled by their clients at casinos.

Mark Lipparelli, Chairman of the Nevada Gaming Control Board, said in an interview this week that outside junket operators, which receive commissions from casinos for their work, are "becoming an area of increased attention for us."

Legalized gambling in the U.S. and Canada is premised on the preservation of the integrity of the gaming industry. In order to obtain and maintain a U.S. state gaming registration, casino operators have to operate their casinos in a way that will not negatively affect the integrity of the gaming industry as a whole. As a result, any link, however small, to criminality with a casino operator affects the integrity of the operator and the industry. The concerns with criminality arise from the fact that there is an identified money laundering risk with junket operators because, among other things, there are gaps in controls and weak supervision of their operations. Junket operators control the movement of money to and from the casinos which can obscure the anti-money laundering process. The VIP Rooms which they operate are not subject to AML reporting requirements and thus a large portion of gambling in Macau operates outside of AML oversight.

April 20, 2010

The Las Vegas Sun has an excellent story that captures the connection between gambling operations in different jurisdiction by the same casino operator and the role of gambling regulators here.

Reporter Liz Benston reports that what she calls the sometimes shady way in which casino VIP rooms are operated with the use of junkets in Macau will impact Atlantic City casino operators who also operate, or hope to operate, in Macau. That's because in order to maintain a U.S. state gaming registration, casino operators have to operate their casinos in a way that will not negatively affect the integrity of the gaming industry in that state.

The smallest link to criminality with a casino operator will affect its integrity, and therefore the integrity of the state's control over the industry. The FATF has repeatedly expressed its concern over casino junkets as a potential vehicle for money laundering in Asia.

May 01, 2006

This post is about the law, politics and economics – and how all three are grappling with one of British Columbia's fastest growing businesses.

The business is Internet gambling, and it’s a tidal wave. Assisted by the popularity of sports wagering and the resurgence of poker as a mainstream recreation, Internet gambling is one of the fastest growing activities of British Columbia consumers. The problem? The actual businesses aren’t in British Columbia. They’re located offshore with foreign companies (some of them publicly listed on foreign stock exchanges) that are draining gamblers’ money out of the province and leaving too little behind in the way of benefits.